Doing Better for Military Retirees
Can't Oregon Do Better Than Dead Last in the Country?
Oregon ranks last in the country in support for military retirees. Active duty military members relocate frequently during their careers, and when they retire, they have an unusually high rate of relocation. Having experienced the conditions and opportunities in many areas of the country, they are savvy shoppers for a new community home. In retirement, economic concerns can be paramount in decision-making, making Oregon’s high income and property taxes a significant concern. Military retirees are generally admired for the positive traits resulting from their years of service and often have many working years left when they leave the service, making attractive residents after their military service. The path of tax relief proposals through the Oregon State Legislature this session illustrates the challenges of passing even a bipartisan bill that might offer better support for veterans.
Veterans have some unusual characteristics compared to other retirees. Most serve 20-30 years in the military, some entirely on active duty, some entirely in reserve status, and many with a combination of both. Their retirement includes both a pension and an account similar to a 401(k). Active duty retirees may receive a non-disability retirement pension as young as age 37 (if they joined at 17), while those who served in the reserves generally start receiving a lower pension between ages 50 and 60. About 30% of military retirees have a rated disability with the Veterans Administration, making them eligible for VA healthcare and often a disability payment to offset their lower earning capacity. Unsurprisingly, disabled veterans of working age tend to have lower civilian pay than their non-disabled peers. Most of these will receive a tax-free benefit to compensate them for those disabilities, as well as healthcare from the VA. Retirement-age military retirees generally have higher income than their civilian peers, but over 150,000 veterans make less than $20,000/year in retirement. Oregon’s tax treatment of active service members is generally positive, with much active duty pay and some reserve pay exempted from state income tax. However, those tax exemptions do not apply to retirement income.
Tax relief for military retirees is popular across party lines. However, the Oregon Legislature’s desire to reward military retirees for their service is tempered by the twin realities that a full tax exemption would be quite expensive and that the average military retiree does somewhat better than a civilian peer, economically. In the 2025 Session of Oregon Legislature, Senate Bill 519 and House Bill 2050 both exempt military retired pay from state income tax. While both bills are technically still “alive,” it appears that HB 2050 has the greatest chance for passage, as it has had a public hearing featuring dozens of supportive testimonies, one neutral one, and none in opposition. The next stop for the bill is the House Revenue Committee.
The legislators involved in the process matter. Notable supporters of HB 2050 include Thuy Tran, the chair of the House policy committee, and Paul Evans, the former chair, who are both veterans and Democrats; and Werner Reschke, who is the Vice Chair of the House Revenue Committee and a Republican representing a district with a well-above-average 12% veteran population. Unfortunately, Nancy Nathanson, who chairs the House Revenue Committee, has not taken a position on the legislation, and none of the Democrats on the Committee are on record as being in support or are themselves veterans. The bill could advance without passage through the House Revenue Committee, but only if the bill gets a majority vote on the floor, a rarely-successful procedural maneuver. (I tried it many times, none successful.) If it passes the House, it likely faces a friendly reception in the Senate, where both the Chair and Vice Chair of the Finance and Revenue Committee are veterans familiar with both the costs of any tax change and the benefits of attracting veterans to Oregon.
As a practical matter, the fate of the bill depends on its cost. The Revenue Chair gets marching orders from the Speaker. Those orders always contain limits on how much the Committee can “give away” in tax credits or deductions. While offsetting the cost with new revenue is a possibility, the bill does not contain any revenue-raising provisions. To pass the bill, the House Revenue Committee will have to reduce the cost.
Fortunately, scaling the benefit can reduce the cost in equitable ways. First, Oregon has roughly 21,000 military retirees who receive an average of about $30,000 annually and the average effective income tax rate in Oregon is 6% after deductions and credits. That gives a revenue impact of roughly $38 million if the bill passes as drafted and all military retired pay becomes tax exempt. One option to provide the most benefit to the lowest-income retirees would be to extend the existing $6,000 active military pay deduction to retired military pay. This results in a revenue hit of only about $8 million. Taking a different approach, keeping the full deduction, but tying it to a service-connected disability would result in a revenue reduction of about $11.5 million. The Legislature could also choose to phase out the deduction at a particular income level, although the revenue implications are more difficult to calculate.
Reducing the income tax burden for military retirees is only one of the proposals to make Oregon friendlier to military retirees. Several other bipartisan proposals aim to reduce property taxes for disabled veterans, provide free tuition to their family members, assist veterans with medical care, and improve Oregon’s veteran dental program. It’s good to see there are still areas where the parties can find agreement. Veterans make good neighbors, and Oregon will benefit in many ways by becoming more attractive to military retirees.
Other News
The Cracks Spread. Last week’s column seems to have been well-timed. A resolution to restrict the President’s tariffs on Canada passed the Senate with 4 Republican votes last week. Bipartisan legislation was also introduced to end emergency tariffs imposed by the President after 60 days unless they receive Congressional approval. Further, the more liberal candidate won a critical Wisconsin Supreme Court seat, despite heavy funding of her opponent by Elon Musk, and Democrats halved their margin of defeat from November to April in two House special elections. Finally, Senator Cory Booker broke Strom Thurmond’s Senate speaking filibuster record by speaking against the Administration for over 24 hours. Congress and the voters appear to be waking up to the dangers posed by the extreme policies coming from the White House.
A Tax and Spend Republican? The President’s tariff announcement has caused a sell-off in the markets and received condemnation from economists across the political spectrum. One under-noticed consequence of the tariffs is that they will bring in an estimated $1.8 trillion increase in government revenue over the next 10 years—but the money comes mostly from the pockets of US consumers. The President would like to use this to fund his tax break extension agenda. Put another way, he’s using a tax-and-spend approach to redistribute wealth from consumers to the wealthy, who primarily benefit from his tax policies.
Coffees and Comments
Many of you have been kind enough to offer to buy me a coffee in real life. I enjoy meeting readers and hearing from you. You’re always welcome to reach out to me at wildefororegon@gmail.com if you want to schedule something. I’m also planning to start having a regular coffee break at 10:30 am on Thursday mornings at Provisions South at the corner of Hilyard and 32nd. Please stop by sometime if you’d like to chat.
I also read all of your comments and e-mails. I don’t always have time to respond, but I enjoy hearing from you.
Keep Letters from a Recovering Politician Free
As always, the best thing you can do to support this column is to share it with people who might be interested. I do not have a paid plan because I want folks to be able to access it without worrying about money. If you’d like to leave me a tip to show your appreciation, you can click on the “Buy Me a Coffee” button below.
Disclaimer
The views expressed herein are those of the author and not necessarily those of the Department of Navy, the Department of Defense, the University of Oregon, or any other entity with which the author is affiliated.